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Sunday, April 15, 2012 1:36 AM

Sarkozy Comeback Bid Falters as French Economy Hits the Skids; Setup Good for Gold?

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As goes the French economy, so goes the reelection chances of French president Nicolas Sarkozy. Although Sarkozy leads in round one, polls show that lead is shrinking at a pace that suggests he will not carry round one.

More importantly, Sarkozy is trailing again by double digits in polls for the decisive round two.

For those not familiar with elections in France, round one pits candidates from all the parties against each other on April 22. If no one gets 50%, the top two finishers square off in round two, on May 6.

Sarkozy struggles in polls as French economy sputters

On April 10, Reuters reported Sarkozy struggles in polls as French economy sputters

President Nicolas Sarkozy's drive to persuade voters he is the best man to lead France to economic recovery suffered a blow on Tuesday, with a survey indicating growth has ground to a halt as he struggles to make headway over his Socialist election rival.

Two weeks before the presidential elections begin, the conservative's lead over Francois Hollande is becalmed or shrinking for the first round on April 22 and he is still trailing in the runoff next month, three opinion polls showed on Tuesday.

With unemployment claims at over a 12-year high, people's purchasing power dwindling and France stripped of its prized AAA status with one credit rating agency, the Bank of France offered Sarkozy's economic record little respite.

In his manifesto, Sarkozy promised to achieve a budget surplus for the first time since 1974 and cut France's swelling debt if re-elected, warning that Hollande would lead the country towards the fate of Greece or Spain.

However, his policy of cutting the budget deficit is helping to slow the economy and hurting his election chances.

"You cannot have a tough fiscal adjustment over two years and expect strong growth at the same time," said Michel Martinez, economist at Societe Generale in Paris.
Comeback Hopes Crumble

In an update on April 13, Reuters reported Sarkozy's comeback hopes crumble, polls show
Four polls published in less than 24 hours showed Hollande extending his lead, with the conservative incumbent's modest gains of the past month starting to evaporate ahead of a two-round contest taking place on April 22 and May 6.

A CSA poll showed Hollande winning the May 6 run-off with 57 percent of the vote. Three other polls also indicated that his chances of becoming France's first left-wing president since Francois Mitterrand were improving.


Hollande has raised eyebrows in Berlin and other capitals by criticizing a European Union accord on debt and deficit control - the fiscal compact agreed in an effort to counter the euro zone debt crisis - and by saying he would open talks if elected to amend it with a pro-growth commitment.

"Germany understands that it cannot remain an island of prosperity in an ocean of recession," he told Les Echos daily. "The changeover in France will pave the way for a change of direction in Europe."

The CSA poll showed Hollande taking 57 percent of the vote in the final deciding round, up from a score of 54 previously.

The other three promising polls for Hollande were published by the BVA, LH2 and TNS Sofres agencies on Thursday.

The BVA poll showed Hollande winning the runoff with a score of 54 percent, up two points from a previous sounding. The LH2 poll showed him taking 55 percent of the vote in the second round. The TNS Sofres poll showed him at 56 percent, up 1 point.
Hollande Promises to Rework Merkozy Treaty

Francois Hollande has campaigned on a platform of making needed changes to the fragile treaty hammered out by Nicolas Sarkozy and German Chancellor Angela Merkel.

Good luck with that.

Meanwhile Merkel has tremendous problems of her own. When, not if, Germany's export machine collapses, it will likely sink Merkel's chances right with it.

Setup Good for Gold?

A Hollande victory will add pressures on the euro vs. the US dollar and also elevate fears of a eurozone breakup. A breakup is likely regardless who wins, in my estimation, however, a Hollande victory could easily escalate the timetable.

If that sentiment catches hold, don't be surprised to see gold rise while the dollar strengthens.

Mike "Mish" Shedlock
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